Asserting that rescuing the lives of firms is the main objective of the insolvency law, IBBI Chairperson M S Sahoo on Thursday said that around 250 distressed firms have been rescued through insolvency resolution plans till June 2020.

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Referring to suspension of provision for filings for insolvency during the COVID-19 period, he said a course correction was required with a limited and clear sunset clause.

The Insolvency and Bankruptcy Code has been in force for four years and provides for a time-bound and market-linked resolution framework for stressed assets.

"Till June 2020, the Code has rescued about 250 such (distressed) firms through resolution plans, one-third of which were in deep distress. While rescuing these companies, the creditors have recovered nearly two hundred per cent of the liquidation value of the companies when they entered into the process," Sahoo said at a virtual event.

Sahoo chairs the Insolvency and Bankruptcy Board of India (IBBI), a key institution in implementation of the Code.

According to him, in normal circumstances, the Code enables market forces to pursue complementary remedies in respect of a failing firm, rescue a viable firm and liquidate an unviable one. There is also a section in the Code that debars non-credible people from submitting resolution plans, he added.

"So a white knight should come and rescue a failing firm when every firm and every industry is reeling under stress. The likelihood of finding such a white knight to rescue a failing firm is remote," he said referring to the COVID-19 situation.

If all failing firms were to undergo insolvency proceedings, most of them would end up with liquidation. Upon such liquidation, firms would have premature death, he noted.

Noting that rescuing a firm is the prime objective of the Code, Sahoo said a course correction was required with a limited and clear sunset clause.

"This is contrary to the general belief that the Code has been suspended, it is in fact a keyhole surgery that suspends a minute part of the Code for only a short period.

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"It suspends filing of applications for initiation of insolvency proceedings against a company for any default arising during the COVID period. COVID period starts from March 25 and continues for six months which can be extended up to one year if warranted," the IBBI chief said.